Fission Uranium's Dev Randhawa Tells the Patterson Lake South Genesis Story & Why It's World-Class

July 25, 2016

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Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is chairman and CEO of Fission Uranium, Dev Randhawa. Dev is an experienced CEO with a strong track record of growing resource, mining exploration, and energy companies. Northern Miner magazine named him mining person of the year 2013 and Finance Monthly awarded him with their dealmaker of the year 2013 award.

Dev founded Strathmore Minerals in 1996 and remained CEO until September of 2008. In 2007, Dev spun Fission Energy out of Strathmore to focus on uranium exploration in Saskatchewan. He remained as CEO and chairman until the company sold its Waterbury Lake discovery and a large selection of its assets to Denison Mines in 2013. Fission Uranium was spun out with the remaining Fission Energy assets as part of the agreement with Denison.

Dev was also a finalist for the Ernst and Young's Entrepreneur of the Year award in 2014. In 2015, Fission won the Exploration of the Year award from The Mining Journal's outstanding achievement awards. Fast forward to 2016, and drills are turning once again at one of the most exciting discoveries across not just the uranium sector, but all resource sectors, the Patterson Lake South discovery. Dev, that was a lot, but you've been busy. Thank you for joining me today.

Dev Randhawa: Well, thank you for having me on.

Gerardo Del Real: Absolutely. We're excited to have you on. I provided a little background there, but for those that aren't familiar with you and the Fission Uranium story, could you share with us a little bit about your experience and how you got involved with Fission Uranium?

Dev Randhawa: Sure. I think you touched on it. We call these spin-outs in Canada, or, legally, plan of arrangements. It's a way of splitting up a company without having a lot of tax consequences. Fission Uranium was really kind of just spun out. I started Strathmore, which gave birth to Fission Energy because we split the company in two, we split it again in two.

Going back, I've owned some of my shares in Fission Uranium going back to 1996. When I was looking for a sector to get into, I remember Rick Rule's words, that you're either you're a contrarian or you're a victim. When I asked him what he thought of the uranium industry, he says, "Well, the math makes sense, but the sentiment's wrong," so I did my math. I did some homework on it. I realized how continually there's more and more reactors being built. They're getting to supply capacity, but yet there's less and less uranium being mined, so I said, "Well, this doesn't make sense." So I got into this space in 1994 and really got more active in it in 1996. That was the idea that when people weren't looking, let's go buy these assets. Warren Buffet says the same thing. We're supposed to be fearful when people are greedy and greedy when people are fearful. So that was a time to go by assets, and we did. And then of course, at that time, uranium price was $7 a pound, and then went to $140.

Around that time, we realized that our projects in Canada were not getting attention, so we split the company in two, and one side of management worked with Strathmore, which became Energy Fuels, and then some of us went with Fission Energy and started hunting for uranium up in Canada. We focused on Canada because the grades in Canada are ridiculously high. It's 10, 20, 50 times higher than the rest of the world. And it's also part of the world with lots of good mineral laws in Saskatchewan. So good jurisdiction, high grade, so we focused on that. That's what came to Fission Energy and we were able to bring in Korean Electric Power Company company to fund us, and they put up all the money. We made the discovery. We were able to turn that and sell that to Denison, and then as we did that, we kept the PLS property. We felt it had lots of potential, and we were right.

What makes the PLS property very different from anything in the world is that it's not just high grade in the right jurisdiction, but it's very shallow. The high grade starts at 50 meters, what we've seen before in deposits in Niger (and other countries) in Africa, which were close to surface, but really low grade. I'm talking .01%. We're talking 2%, and they're talking .01%. It's (Saskatchewan) a very unique part of the world where the grades are high, but for the first time, someone found something very close to surface in a large amount. That's why PLS was voted in this last December in London as the best exploration project in the world. Not the best gold, not the best uranium, not the best silver, it's the best project, because the rock is worth $14,000 per tonne. Open pittableAn open pit will go for $150. The economics are insane, so it's a very unique deposit in that sense.

I'm the chairman of Fission Uranium because I started all the way back here. And that's one thing investors always look for: are management interests aligned with investor's interests? And we've owned our own shares for a very long time, and we don't start new uranium companies. We just spin them from the ones we have, so we've always aligned ourselves with investors. So that's how I got involved with Fission Uranium.

Gerardo Del Real: Fantastic. As I mentioned, drills are turning once more at PLS, and I want to talk about the drill program in just a bit. First, I'd love to hear your take on the uranium market. You touched a little bit on the cyclicality of it, and because you've seen several of these cycles, Dev, I'm curious to hear how you see the supply and demand fundamentals developing.

Dev Randhawa: Well, there's more reactors being built today after Fukushima than before. People don't realize that. There's I think 400 in the world, 300 being built and proposed, and many of them even after Fukushima. For example, home of cheap oil Saudi Arabia, they're building reactors. Obviously the big elephant in the room is China. We need nuclear power because we need power. We're 75% more electricity is needed just in the next 10, 15 years, so we need power. Nuclear provides about 20% of American energy mix, and a lot of countries see that as the best combination, so China wants to do that.

What's been going on while we keep building reactors is the utilities, American utilities especially, they are not buying. When I began in this industry, uranium was $7, $8. You would think they would go out and buy all the uranium in the world, but you know what utilities did? They didn't. They felt, "Oh no, it's $7, $8 per pound. It's always going to be this way," so what happened? They got caught when everyone rushed in to buy it. It was a very thin market, prices went to the roof, and now those utilities are paying uranium at $80, $90 per pound still, because instead of taking opportunity, which you understand that people who work for utilities aren't entrepreneurs, they're bureaucrats who don't look for opportunity, so they're doing the same thing now.

The fundamental change since Fukushima isn't the amount of uranium consumed, in fact, demand's going even higher and higher, it's the way utilities buy. Instead of buying five to ten years out, they're only buying two to three years, five years out. They've changed the way they buy uranium. For example, I met with Mr. Gitzel, CEO of Cameco, and he explained to me over dinner. Utility companies used to contract 120, 140 pounds of uranium a year, because that's what they needed. Last year, they contracted 56. This year I'm understanding is even half of that, so they're not contracting like they used to. They're using uranium, but they're not contracting for it. That's where the problem sits.

What it's going to take in our industry is going to be another black swan event. What caused it last time was a flood at Cigar Lake. There was a fire (Ranger Mine) and suddenly uranium wasn't available and all utilities jumped in. Now, in somewhat defense to the utilities, they only need X amount, and it's only a small part of running the reactor, like 2-5%. Even if uranium goes up quite a bit, it doesn't really impact the long-term economics of a reactor, so they can go, "Hey, we'll wait, we'll wait. Mañana, mañana, we'll wait."

That's what's happening today is it's not a question of do we need less uranium. No, no, no. We need more and more and more. Just the pace that China's going at, CGN, our partner, they recognize where they want to go and they want to make sure they're covered in 2022, 2025... and they're thinking ahead. Unfortunately, a lot of other utilities are not. That's why CGN is far more active in that space. They gave us $80 million dollars to be involved. They get it.

The psychological elephant in the room still remains Japan. They've only turned on I think four to six reactors in the process, but really they need to turn on 10 to 12, before the market believes them that they're going to come back to nuclear power, and they have to. If you look at their current deficit, in the city of Kyoto where the Protocol was written, they've broken their own rules and the CO2 levels have gone through the roof. So in my view, where we are at today is simply, utilities have changed the way they buy, but demand for uranium still remains very strong.

Gerardo Del Real: Excellent. Well, let's talk about PLS. Anybody that's been paying attention knows that you have a world class discovery on your hands that keeps getting better, and I'm in the camp that believes that Fission Uranium presents one of the most compelling risk/reward propositions across all sectors, and I'm not alone. You mentioned CGN, which is China's leading nuclear builder. They bought into Fission at higher prices and to the tune of C$82 million, in Canadian, if I'm not mistaken. Can you share with us some of the details of that deal and where the deposit stands now and what you hope to accomplish with the summer program that's currently ongoing?

Dev Randhawa: Sure. Well, they've been knocking on our door for quite some time, and then finally, when they realized there was competition for the project, they jumped on it very quickly. In fact, I think we announced the deal three days before Christmas. We closed it in 30 calendar days. That's pretty hard to believe when you think of the central government of China and getting TSX approval, over Christmas, by the way. Remember, we signed before Christmas. We had Christmas and New Years, and we still got it done, because they (CGN) wanted to get the deal closed.

They recognize that shallow deposits are much easier to mine. There's a lot less risk. You're digging a hole, it's a trucking operation. Also, in an open pit, you get every pound. When you go underground, you don't. To give you an example, look at what just happened at Cameco. They just shut down Eagle Point. Eagle Point is 600 meters down. Here's something that was being mined, actually being mined. Hundreds of millions of dollars got spent getting to that ore, and they quit, because they said it's too expensive. When you go underground there are a tremendous amount of risks and costs, especially in the Athabasca.

That's why CGN got involved with us. They get to buy 20% of our uranium, take or pay. They have to buy 20% of our production, and they have a choice for 15% more. They have two directors on our board out of nine, and they're fantastic. They've given us some good advice on what they think the uranium market's doing, and they have good engineering people, so it's beyond a, "Write us a check and let us be," kind of thing. They want to be involved, and they can be very helpful. Remember, they operate mines all over the world, and they certainly know a lot about utilities, so it's very key that they're a part of us.

What we are doing with our drilling obviously with them wanting to move into production, was making sure our pounds are indicated. A lot of people in the investment community don't understand what a deep pound is, a shallow pound is, but more importantly, what's inferred versus indicated is. We've been drilling our holes 15 meters apart, so we were very confident we had them, in fact, our PEA puts them in a category of indicated. To go to pre-feasibility, your pounds have to be indicated, so we got them into indicated. Now the challenge is how big will this be. Last year, we showed the footprint of the deposit is over about a mile and a half long, or 2.3 kilometers wide in (in length). What we want to show is that the ends continue to grow, and then also fill in.

The other thing we're trying to do on the project is find a new deposit. Look, this conductor where we found all this uranium on is only one of 104 conductors on our property, so there are a lot more targets on the property. We're doing work to vector into where we can drill new targets. So we want to move towards pre-feasibility, do the things that are required for that, because we have enough pounds indicated to do that. But just as important to us... we don't want to a year or two sell from now and think we missed out on a great blob of uranium. Uranium in the basin is very different. Literally a small football field can give you 50 to 100 million pounds, so you've got be very careful not to just jump over targets. It's expensive drilling, so we try to keep our costs low with different ideas and techniques we've used, but overall, our goal this summer is to show that it can continue to grow east and west, but also the west has got a newly discovered large blob of uranium. We're going to be focusing on the west as much as anything.

Gerardo Del Real: Well, that's exciting, Dev. I think something that always gets lost in the mix or oftentimes gets lost in the mix is how early stage the project actually is. You have a world class discovery. It's obviously getting bigger, but there is so much exploration potential that still exists, and frankly, that's what excites me about the current drill program. I'm looking forward to the initial numbers and seeing what else you find. Dev, thank you so much for joining me today. Is there anything else you'd like to add?

Dev Randhawa: Well, yes. I would encourage investors to really do their homework. When we go through cycles, people throw numbers out and investors don't, but do some homework. I can probably mention ten companies that were at billion dollar market caps in the last run. Today, you can buy them for a cup of coffee, because people get caught up and think all pounds are the same. Just encourage investors to really do their homework and what are true pounds of uranium and what grade means, jurisdiction means, and depth of deposit, because those things do matter, and that's why China, I think the world leader in nuclear power, has come to Canada and looked at PLS.

Gerardo Del Real: Fantastic. Dev, I look forward to having you back on soon, and obviously looking forward to initial results from the summer program. Thank you again for your time this morning.

Dev Randhawa: Thank you.

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